Management may be vested in the shareholders, rather than in the board of directors, and corporate formalities may be lessened. A shareholders' agreement is often utilized and is expressly authorized by statute. The California statutory close corporation has never become overly popular, perhaps due to concerns that the lack of corporate formalities could attract "alter ego" lawsuits (in spite of statutory authority to the contrary) and condone poor record keeping (resulting in IRS audit problems). Those who desire to conduct business like a general partnership, but who also desire to benefit from limitation of their liability for business-related debts, are well advised to consider a limited liability company (not available when the close corporation statute was adopted in 1975).

How Formed? Articles of incorporation must contain the statement: "This corporation is a close corporation." Articles must also state that the corporation may have no more than a stated number of shareholders (with a maximum of 35). Name must have the words "corporation," "incorporated," "limited," or an abbreviation of one of these words. Share certificates must bear a statutory legend.

Taxation: May be a "C" corporation or an "S" corporation, and will be taxed accordingly. Although management may be less formal, federal tax record keeping requirements are the same for statutory close corporations as they are for any other corporation.